Report of the Directors
FINANCIAL HIGHLIGHTS
Viridor traded very strongly in 2009/10, building further on the growth achieved over the past eight years. Revenue was up 18.7% (£98.5 million) to £626.5 million, of which acquisitions accounted for £89.7 million and existing business £8.8 million (including landfill tax of £6.3 million).
Viridor's landfill gas power generation output increased by a further 10% to 555 gigawatt hours
Viridor's earnings before interest, tax, depreciation and amortisation of intangibles (EBITDA) rose 9.1% from £105.2 million to £114.8 million. Profit before interest, tax and amortisation of intangibles (PBITA) for the year increased by 15.1% (£9.6 million) to £73.1 million, compared with £63.5 million in 2008/09. With the commencement of the Greater Manchester and Lakeside projects, joint ventures now account for a significant part of Viridor's profits (£4.2 million in 2009/10) and we now focus on PBITA plus joint ventures as a key performance indicator. We profit from our joint ventures both via interest on shareholder loans and via share of the joint ventures' profit after tax (PAT). PBITA plus joint ventures grew by 19% in 2009/10 and has grown by a compound rate of 22% since 2001.
Profit before tax and amortisation (PBTA) at £55.4 million was up 34.8% on the previous year and has grown at a compound rate of 19% since 2001. Capital expenditure for the year was £46.6 million (2008/09 £84.0 million) and we invested £30.8 million in our Greater Manchester, Runcorn Combined Heat and Power (CHP) and Lakeside joint ventures.
pbita plus joint ventures, pbt and return on equity
PBITA plus joint ventures (which contributed from 2008) and PBT are key overall measures of Viridor's performance and are set out in the table below for the ten-year period 2001 to 2010. The table also sets out the Compound Annual Growth Rate (CAGR) for these measures, being the rate of growth between 2001 and 2010 expressed as a single annual average figure over the period. Return on equity is also a key measure of Viridor's performance and is calculated as PBT expressed as a percentage of Pennon Group's equity investment in Viridor (£252 million at 31 March 2010).
|
Year ended 31 March
|
2001* |
2002* |
2003* |
2004* |
2005 |
2006 |
2007 |
2008 |
2009 |
2010 |
CAGR |
|---|---|---|---|---|---|---|---|---|---|---|---|
|
PBITA plus joint ventures |
13.1 |
15.2 |
19.1 |
22.7 |
30.0 |
35.9 |
46.8 |
58.1 |
64.9 |
77.3 |
22% |
|
PBT |
11.7 |
13.8 |
15.7 |
17.2 |
21.5 |
23.5 |
29.4 |
35.5 |
40.8 |
55.4 |
19% |
|
Return on equity investment |
6.1% |
7.2% |
8.2% |
8.8% |
11.0% |
11.3% |
14.2% |
17.1% |
19.7% |
22.0% |
- |
|
*UK GAAP |
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Viridor profit contribution by type of business
The pie charts below provide a breakdown of Viridor's profit contribution by type of business (before amortisation of intangibles and central overhead costs including pensions). In 2009/10 landfill accounted for 31% and landfill gas power generation 28% of Viridor's profit contribution, compared with the previous year's 45% and 25% respectively. Recycling accounted for 16% (last year 16%) and contracts grew to 15% from 3% in the previous year whilst joint ventures accounted for 4% (last year 2%). In total 44% of Viridor's profits come from recovering value in waste either by power generation or recycling.
Landfill
Total landfill disposal volumes decreased by 0.7 million tonnes (15%) to 3.9 million tonnes in the year. Approximately 0.2 million tonnes of this was due to landfill closures, as reported last year. The bulk of the remaining reduction was in third party industrial and commercial volumes which were heavily impacted by the general weakness in the UK economy. Average revenue per tonne increased by 1.1% to approaching £22 per tonne (3.1% like for like excluding site closures). Consented landfill void reduced from 81 million cubic metres at 31 March 2009 to 77 million cubic metres at 31 March 2010, reflecting 1.2 million cubic metres planning gains and usage during the period of 4.8 million cubic metres.
Landfill Gas
Viridor's landfill gas power generation output increased by a further 10% to 555 Gigawatt hours (GWh) during the year particularly reflecting capacity brought on in late 2008/09. All of the output increase was accredited for full ROCs in advance of the banding change. Viridor's average revenues per Megawatt hour (MWh) grew by 21% to approaching £90 reflecting the growth in the proportion of output eligible for Renewables Obligation Certificates (ROCs). Taking advantage of favourable market conditions in May 2008, Viridor sold forward the brown element of its 'ROC-able' electricity to March 2010 at May 2008 prices. Current power generation prices are significantly (circa £30 per MWh) lower. This will materially affect power generation segment performance for 2010/11.
At 31 March 2010 Viridor's landfill gas power generation capacity was 100 Megawatts (MW). At 31 March 2010 63% of Viridor's power generating capacity was eligible for ROCs and 37% for the Non Fossil Fuel Obligation (NFFO).
Consented landfill void
As at 31 March 2010 Viridor had a consented void capacity of 77 million cubic metres.
Power generation capacity
Electricity generated is sold to electricity suppliers, usually under NFFO contracts or under shorter term contracts with ROCs. As at 31 March 2010 Viridor had 100 MW of operational landfill gas generating capacity which is virtually the same as the previous year. These figures exclude 3 MW of sub-contract capacity in Suffolk. In addition there is 27.5 MW of energy from waste combustion capacity (Bolton and 50% of Lakeside).
RECYCLING
The UK is required under the EU Landfill Directive to reduce the amount of biodegradable municipal waste going to landfill sites. To meet the requirements of the Landfill Directive the UK Government uses landfill tax as a price mechanism. At the same time the Government has set clear targets for the recycling of household waste, and local authorities must also implement strategies for the diversion of biodegradable municipal waste away from landfill. The former Chancellor's Budget announcement on 24 March 2010, continuing the increase in landfill tax of £8 a year from £48 per tonne currently to £80 per tonne in 2014/15, will further enhance the long-term economics of recycling. In general, recyclate costs are typically significantly lower than the cost of using virgin materials for manufacturers.
Viridor's recycling traded volumes grew 3.5% to 1.4 million tonnes, with an improved recyclate mix
As reported last year recyclate prices were high in the first half of 2008/09 and low in the second half, reflecting the prevailing general world economic conditions. Since then recyclate prices have recovered, ending the year at around the peak levels seen in early 2008/09. Viridor's recycling traded volumes grew 3.5% to a little over 1.4 million tonnes, with an improved recyclate mix. Recyclate prices have continued to strengthen since the year-end but are expected to ease back later in the year.
In June 2009 Viridor acquired London Recycling Limited for a cash consideration of £10.6 million, plus debt acquired of £1.5 million. With its headquarters in East London, the business comprises a full range of recycling operations including a fleet of collection vehicles, a 'WEEE' facility, paper processing, confidential material destruction, a MRF and a waste auditing facility. It handles approximately 50,000 tonnes of material per annum. London Recycling has had a good track record over recent years in providing essential recycling services to businesses in the capital and has an excellent geographic and business fit with Viridor's operations in the South East of England.
Plastics in particular are a significant and growing part of Viridor's recycling business and in July 2009 Viridor acquired Intercontinental Recycling Limited for a cash consideration of £4.2 million, plus debt acquired of £3.9 million. Based in Skelmersdale, Lancashire, the company processes High Density Polyethylene (HDPE) and Polyethylene Terephthalate (PET) plastic bottles, such as are recovered by Viridor's MRFs. It converts the bottles to pellet or flake for sale to plastic product manufacturers, mostly within the UK.
The plant has the capacity to treat 40,000 tonnes of plastics waste per annum. Intercontinental Recycling also has a good geographic and business fit with Viridor's existing operations and is particularly well-placed to receive volumes from the Greater Manchester Waste PFI.
After the end of the financial year, on 23 June Viridor acquired a number of companies known as 'Reconomy Recycling Solutions' (comprising of Alibone Recycling Limited, Anglia Recycling Limited, Basecall Ltd and Oakley Waste Management Ltd) for a cash consideration of £23.8 million (including debt acquired).
Headquartered in Northamptonshire and providing recycling and waste management services across the South Midlands and East Anglia, the acquisition included three material recycling facilities (including a showcase MRF at Earls Barton), a fleet of over 50 collection vehicles, paper, card and plastics processing, confidential destruction, and a waste transfer station, handling approximately 250,000 tonnes of material per annum, of which over 150,000 is recycled.
CONTRACTS
Contracts profits were well ahead with continued good performance from the West Sussex PFI and 10 other municipal contracts. The sludge contracts business which performed poorly in the second half of 2008/09 was back in profit. There was also a significant contribution from the Greater Manchester Waste PFI sub-contract.
PUBLIC PRIVATE PARTNERSHIPS AND PRIVATE FINANCE INITIATIVES
Public Private Partnership (PPP) and Private Finance Initiative (PFI) contracts are a key part of Viridor's strategy.
Financial close on the Greater Manchester Waste PFI 25-year contract was achieved on 8 April 2009. It is the UK's largest ever combined waste and renewable energy project, managing 1.3 million tonnes of waste per year. The total potential energy generation will be approaching 140 MW from Phases I and II of the Runcorn plant, the four anaerobic digesters (ADs) and the existing Bolton Energy from Waste (EfW) plant.
The PFI is a joint venture between Viridor and John Laing Infrastructure. Operation of the associated facilities is being carried out on a sub-contract basis by Viridor. In October 2009 it was confirmed that all required facilities planned for development had received planning permission. At 31 March 2010 of these 42 facilities 22 had been completed and handed over to Viridor to operate.
Associated with the Greater Manchester PFI is an EfW CHP facility (Runcorn Phase I) which is a three-way joint venture between Ineos Chlor, Viridor and John Laing Infrastructure. Planning permission was achieved by Ineos Chlor for both phases of the EfW CHP plant at Runcorn in September 2008 and construction of the first phase has commenced. Total capital expenditure for the Greater Manchester PFI is projected to be £405 million with an additional £235 million for the associated EfW CHP plant (Runcorn Phase I). Viridor's funding contribution will be £85 million. In addition we have secured all of the rights to Phase II of the planned EfW CHP facility at Runcorn. This will be targeted at the North West market more generally and is a significant upside to the initial project, given rising landfill tax and the shortage of competing capacity in the North West.
In addition to the above contracts we continue to bid selectively for other projects. We are the preferred bidder for the Oxfordshire PPP and one of the last two for the Cheshire PFI and the South West Devon Waste Partnership. We are one of the last three for the Peterborough EfW and MRF contracts and one of four still in the bidding for the Gloucestershire PFI and South London Waste Partnership contracts. Most of these projects include renewable energy.